Institutional Interest in Bitcoin Derivatives Likely Affecting Prices

    News and Updates

    Increased interest in CME bitcoin derivatives points to high levels of institutional adoption of bitcoin as a reliable asset class. 

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    According to Chicago Mercantile Exchange (CME), the past couple of weeks have seen levels of interest for bitcoin skyrocket amongst investors usually interested in more traditional investment tools. The halving event almost certainly played a role in the increased interest. With bitcoin populating the headlines, investors have found renewed interest in the coin. Increased exposure isn’t the only reason institutional money is moving into the bitcoin ecosystem, however.

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    Products such as CME’s bitcoin derivative products also help bridge the gap between digital assets and investment markets that have traditionally been more accessible to investors. 

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    CME Growth Patterns

    CME is a good indicator of institutional interest in bitcoin since most of the company’s customer base is made up of institutional entities. When CME products related to bitcoin see increased volume it is a telltale sign that intentional investors are beginning to see bitcoin as a viable tool and investment vehicle that can be trusted enough to bet on with big money. CME has reported nearly 1000 new bitcoin derivative accounts in just over 4 months which is over twice the new account creation numbers for the same period the previous year. 

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    In addition to the new accounts data, bitcoin futures daily volume is also considerably higher than it was last year. In fact, at close to 8,500 new contracts so far this year, the increase is almost 45% higher. Bitcoin options contracts are also up, with approximately 2,400 contracts created in just three months. Between bitcoin futures and options at CME currently sit at a value of nearly $430 million in bitcoin. That number - over 30% - is also considerably higher than it was the previous year. The open interest is a sign, according to CME and others, that institutional investors are expecting more from bitcoin than they have in the past. 

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    Another factor that can be attributed to the increased volume at CME - in terms of both bitcoin futures contracts and bitcoin options - is that CME makes it easy for investors to gain exposure to bitcoin through products that look and feel much like those associated with other types of assets. 

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    Strong Investor Support

    Yet another catalyst that may have spurred a high influx in interest in bitcoin amongst institutional investors is the significant move made by billionaire investor, Paul Tudor Jones. The highly respected veteran hedge fund manager and investor stated recently that bitcoin may very well be a viable hedge against incoming inflation caused by excessive money printing. Considering the fact that Tudor is one of the top hedge fund managers in the country, any move by him in either direction would likely bring along a slew of other less-affluent investors who either trust Tudor’s expertise or fear losing out on something they would not have otherwise paid attention to. 

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    Bitcoin Price Predictability

    With increased institutional support for bitcoin, there are some new patterns emerging for bitcoin prices. Traditionally for bitcoin, volumes and price action have been decided largely by the spot market. Today, institutional investors with much higher capital than the common retail investors tend to have been able to create much more complex orders for bitcoin - both expecting prices to rise and fall. Futures and options contracts create padding for the prices that did not previously exist to any substantial degree and because of that many are expecting the unexpected following the latest halving event. 

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    If bitcoin were to follow a similar trajectory to what it has done in the past - before, at, and after a halving event - it would be fair to expect large gains over the next two years, or so, with a dip lasting weeks or months before picking back up for a major bull run to all-time highs. 

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    Some are saying that we have already seen signs on the charts that signal a different story - one where institutional involvement will reign in both bitcoin prices and its volatility in the coming months and years. 

    Final Thoughts

    While it is still too soon to tell whether the bitcoin ecosystem will follow a path destined for the moon or begin to look a lot more like other asset classes such as gold and others, there is reason to believe at least a slow growth over the coming months and years looks very likely. Looking at the price actions over the past few days, it seems like bitcoin is respecting its historical patterns. However, there is also a possibility that institutional money may have already been instrumental in throttling bitcoin’s volatility. What happens over the next few weeks will be especially important as bitcoin has some considerable support and resistance levels to test.

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